Question

From the article: "Companies... are grappling with how much they can raise prices to offset higher costs for energy, raw materials and transportation..." Refer to the graph you drew to answer the previous question. Describe how an increase in the price of energy used to produce Purina pet food will shift the supply curve.

Would the shift in the supply curve cause a greater change in the price of Purina pet food if the demand curve were D1 or D2?

Would the shift in the supply curve cause a greater change in the quantity sold of Purina pet food if the demand curve were D1 or D2?

Answer 1

An increase in the price of energy would shift the supply curve for Purina pet food to the left. The impact on price and quantity sold would depend on whether the demand is represented by a less elastic curve D1 or a more elastic curve D2; price changes more with D1 and quantity changes more with D2.

Step-by-step explanation:

An increase in the price of energy used to produce Purina pet food would cause the supply curve to shift to the left, indicating that at each price level, a smaller quantity of Purina pet food is supplied. This leftward shift occurs because higher production costs reduce manufacturers' willingness or ability to supply the product at previous prices. If we have two demand curves, labeled D1 and D2, the shift in the supply curve would have different effects on price and quantity depending on the elasticity represented by these demand curves.

If demand curve D1 is less elastic (steeper), the increase in production costs and the subsequent shift in the supply curve will result in a greater increase in price and a smaller reduction in quantity of Purina pet food sold compared to the more elastic demand curve D2 (flatter). Conversely, with the more elastic demand curve D2, there will be a smaller increase in price but a larger reduction in the quantity sold of Purina pet food when the supply curve shifts leftward.